When you take out a logbook loan, you’re basically putting
up your car as security against a loan. This means that you no longer have full
ownership of the car until you’ve paid the loan off; it technically belongs to
the company that lent you the money. This can lead to a serious problem if you
buy a second-hand car with an outstanding logbook loan. Even if you had no idea
about this and were told there was no outstanding finance on the car you could
end up being chased for the debt by the logbook loan company. They can
sometimes even take the car off you.
How do they
work?
When you take out a
logbook loan, you need to hand over your vehicle’s logbook (this is the vehicle
registration document that proves you own the car). You’ll also have to sign a
credit agreement and a form called a ‘bill of sale’. A bill of sale is like a finance
agreement, although it’s a very old-fashioned and complicated one. The law only
recognises a bill of sale if the lender registers it with the High Court; this
is something they need to remember to do after you’ve signed it and given it to
them. If it’s not registered, the lender must get a court’s approval to
repossess your vehicle. Once you’ve done this and signed on the dotted line,
the lender now owns your vehicle; however you can still use it so long as you
keep making all your loan repayments.
How do I get
the money?
Normally you get the loan by cheque, which takes several
days to clear. Some logbook loan companies do offer a quick cash service, but
they may charge (this can be up to 4%) for this. Most logbook loans run up to
78 weeks (which is 18 months), although you are able to pay it off earlier. Be
careful though; with some agreements, you may only be repaying the interest
charges until the last month of your contract. This means that in the final
month, you’ll need to repay the full amount of money you originally borrowed in
the first place.
Drawbacks to
taking out a logbook-loan
The annual percentage
rate (APR) can be around 400% or higher, and is charged on the loan amount each
week. This means that if you borrowed - for example - £1,500 and paid £55 a
week for 18 months, you would repay over £4,250 in total. That’s almost £3000
in interest. Even more worryingly, you could lose your vehicle if you can’t
make the repayments to the loan company; they technically own it now so they
can take it back.
It’s worth
knowing that…
One in five people who have reported problems with log-book-loans have ended up having their car repossessed, even though they didn't
borrow the money in the first place. Around 60,000 logbook loans were taken out
last year. The average amount of a loan is £1,000, but it can be as high as
£50,000. In a survey of 874 drivers who had bought a second-hand car, nearly
two thirds (63%) did not check if the car had an outstanding loan attached and
two in five (40%) hadn't even heard of a logbook loan.
What to
think about before taking out a logbook loan
The annual percentage rate (APR) can be very high, so it is
best to pay it off as quickly as possible. Be careful though - there may be
early repayment charges if you repay more than £8,000 in any 12-month period.
Logbook loan lenders may ask for weekly payments and some do not take direct
debit so it can be difficult to keep on top of how much you owe. If you can’t
pay back your logbook loan The very first thing to do is to check if the bill
of sale is registered. If it isn’t, you have a lot more options.
Logbook loan lenders have the right to use bailiffs to seize
your car or motorbike if you don’t meet repayments, and they can sell it on.
Because of the nature of a logbook loan, they wouldn’t even need to go to court
to repossess your car.
If you sell your car whilst you have a logbook loan taken
out against it, and the amount it sells for is less than the amount you still
owe, you will still be responsible for paying the difference. If you don’t, you
might get taken to court for the money.
